What is meant by signing a transaction in a multi-sig setup?

In a multi-sig setup, signing a transaction refers to the process by which multiple parties involved in a transaction must provide their digital signatures in order for the transaction to be executed.

Multi-sig, short for multi-signature, is a cryptographic technique used to enhance the security of cryptocurrency transactions. In a multi-sig setup, multiple parties are required to provide their digital signatures before a transaction can be executed. For example, a multi-sig wallet may require three out of five authorized parties to sign a transaction before it can be executed.

When a transaction is created, it is signed by the party or parties who initiate it, but it is not executed until the required number of signatures have been obtained. Each party involved in the transaction holds a private key, and each private key is associated with a public key. The public keys are combined to create a unique multi-sig address that is used to receive and send transactions.

When a transaction is created, it includes the multi-sig address and the amount of cryptocurrency to be transferred. The transaction is then broadcast to the network and awaits the required number of digital signatures to be collected. Once the required number of signatures have been obtained, the transaction is executed and the cryptocurrency is transferred to the designated address.

Signing a transaction in a multi-sig setup provides an additional layer of security to cryptocurrency transactions, as it requires multiple parties to verify and approve a transaction before it can be executed. This helps to prevent unauthorized access to cryptocurrency wallets and reduces the risk of fraud and theft.